LOS ANGELES, United States — “When I started my last business, raising money wasn’t as popular as it is now,” says serial entrepreneur Yael Aflalo, who started the contemporary label Ya-Ya in 1999 at the age of 21. “There wasn’t [venture capital] going into fashion.”

Fast forward almost two decades and Aflalo’s second company, the direct-to-consumer, transparency-driven label Reformation, has raised $37 million in funding since its founding in 2009 — including $25 million in 2017 when the business was already generating more than $100 million a year in retail sales. (Aflalo plans to use the funds, in part, to open more physical stores.)

Today, raising money is much more common for fashion businesses aiming to fuel growth — or simply stay afloat. There are various stages of fundraising, starting with early-stage funding (sometimes referred to as a “friends and family” round, but not always), which can include money from a founder’s personal savings, as well as small checks from people the founder already knows, who are not necessarily traditional investors. However, there are also investors who specialise in early-stage funding, or seed funding, including so-called “angels” — individuals who put their own money into a business — or a seed fund, which focuses its investments on new companies. (Forerunner Ventures, led by founder and star investor Kirsten Green, is an example of an early-stage investment fund.)

Seed rounds can vary in size, but typically start at around $250,000 and can go up to more than $3 million, depending on the type of business the founder is launching. (It can cost relatively little to launch a bare-bones apparel collection, while something that requires new technology may be more capital-intensive.)

Next up is venture-capital funding — Series A, Series B and so on. Venture capitalists typically write bigger checks based on the valuation of a company. In general, the bigger the check, the higher the valuation, meaning that the brand will need to scale in order to reach that valuation. This is often where strategic investors, such as private equity firms or larger companies, enter the picture.

But how much money should start-ups really be raising, when and from where?

“Right timing is the most important element, then the team, and then your first investors,” says Carmen Busquets, a serial early-stage investor who has backed the likes of Net-a-Porter, Moda Operandi, Farfetch and Ordre. “Money coupled with the right idea and right team but the wrong time usually takes you nowhere. There is also the factor of synchro-destiny, or luck in finding that right first investor to take the wrong time and use it in your favour, to turn it into the perfect time against all odds.”

BoF asked a range of investors for their advice on raising early-stage capital:

Hold off on raising money for as long as you are able. Entrepreneurs often ask friends and family for money when starting out. However, many investors advise postponing raising that first round of funding, however informal it seems. Aflalo, for instance, used revenues from a line she designed for Urban Outfitters to fund Reformation in the early days. She didn’t raise a Series A funding round until 2015, six years after the company was founded.

Using your own funds also keeps you accountable in a way that taking outside funding may not. “I definitely believe in holding off on raising money for as long as you can,” says Theory chief executive Andrew Rosen, who has personally invested in several independent fashion labels including Proenza Schouler, Alice + Olivia, Rag & Bone and Co. “Money can be easy to come by, but unless you know what to do with that money, it doesn’t have any value. You’re better off making sure you have some experience and an understanding of the marketplace.”

If you do raise money from friends and family, be upfront about the likelihood of a return. “In the early stage of any fashion company, it’s hard to even prove that your product is going to sell,” says Ari Bloom, a seed investor and chief executive of San Francisco-based fashion software company Avametric. “You have to be sensitive and honest with them. You also have to ask yourself if you have the stomach and ability to take money from people you know and lose it.”

For early investors, “It's an emotional decision and it's all about trust,” adds Sarah Berner, a New York-based investor who also advises early-stage brands with a focus on sustainability. “They need to believe in you as a founder and leader. Surround yourself with an all-star and diverse group of advisors and mentors from day one.”

Establish proof of concept as quickly as possible. “I don’t invest in start-ups,” Rosen says. “You have to have a good idea that cuts through a very crowded, global marketplace.” That means sketching a clear roadmap for your business that includes a reasonable path to profitability. “When I look at companies, I want to know that they can execute on both design and manufacturing,” he adds. “They have to have a sustainable business on a certain level.”

“The first step is simply to be profitable,” says Busquets, who typically invests $100,000 to $250,000 in a first fundraising round. “If [a start-up] doesn’t have aggressive growth, it needs to find investors that will give a fair exit opportunity to the friends and family who took the greatest risk in supporting the idea first. Many friends and family investors can afford a venture capital exercise and be happy with a good return of their investment in exchange of supporting you, but they cannot usually stay with you for 10 to 15 years like strategic investors or private equity partners.”

“The best thing you can do is finance your growth,” Bloom says. “If it’s just about financing working capital, that’s not an attractive equity investment.” The bottom line: Growth is expensive. Even if the demand is palpable, delivering that product to the consumer costs money, from launching international e-commerce to opening new physical retail stores.

Manage your expectations around partnering with a dream investor. While your ideal scenario may include partnering with a well-known investor like Rosen or Busquets, remember that it’s an investor’s role to speak to as many businesses as possible, not to fund as many as possible. “Investors actually write very few checks a year, so be thoughtful about that,” Aflalo says. “When I first started out, I didn’t understand that. There are a lot of conversations, but very few checks.”

It’s also important not to dismiss potential investors early on — even if they aren’t a marquee name. “Investing in start-ups is risky and relationship-based. Anyone who decides to believe in you when you are small and still finding your footing should be seen as your new best friend and a true ally,” Berner says. “If you've raised more than $5 million, you can be more discerning in terms of investor type and minimum investment size.”

Find investors who are dedicated to your brand — and vision. While star investors might be difficult to wangle, if you feel strongly about a certain person or group it doesn’t hurt to be persistent — within reason. “In general, I have a rule of telling people ‘no’ three times,” Bloom says. “It lets me know if they’re really serious. The point is that it’s really, really hard to build a fashion business and I want them to think about whether or not they actually want to do it.”

“I always tell founders, ‘Find partners, not just investors,’” Busquets adds. “Partners will share your vision and help you to make the impossible possible. Investors won’t. They will always be impatient and go off to the next best deal, instead of focusing on you and your company.”

Enter into fundraising knowing how much you believe the company is worth, and how much of it you’re willing to give up. “How much money you raise directly correlates to the percentage of the business you’re giving up,” Aflalo says. “You really need to think, ‘How much control do I want over the business? Am I comfortable giving up control?’”

At this point, you must set a value for the company. A “pre-money valuation” is the worth of the company not including new outside funding, whereas a “post-money valuation” is the worth of the company including new outside funding. For instance, if a company is valued — both by its founder(s) and investors(s) at $1 million — and raises $250,000 in funds, its pre-money valuation will be $1 million and its post-money valuation will be $1.25 million. The fewer assets a founder has, the more likely he or she will need to bring on an investor at the post-money valuation, which in many cases will earn the investor a greater percentage of the business.

Work with trustworthy financial and legal advisors. “It’s challenging, if not impossible, to raise capital without having a financial partner who assists,” Aflalo adds. Bloom also advises working with a lawyer who can review contracts, especially for designers who run eponymous brands and want to keep the right to use their own name, even if they eventually exit the company. “Having a good lawyer is as important as the investment,” he says.

Treat your first investors well. While your first investors may not be your biggest investors, they are often most crucial to a company’s success because they are helping to transform a dream into reality. “It's so important to maintain good energy and fairness to all parties involved, especially towards your first investors and in creating a second exit,” Busquets says. “This has been the case with my most successful companies and I try to implement this when I can.”

Disclosure: Carmen Busquets is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders' documentation guaranteeing BoF's complete editorial independence.